Spain moves closer to passing a startup law

Spain’s government has agreed on the details of a draft startup law — passing the baton to the parliament to debate and potentially amend the plan ahead of a vote to turn it into actual law.

The Council of Ministers announced adoption of the draft text today which it said contains important measures to cut red tape and remove bureaucratic obstacles for founding and investing in startups in Spain.

The package also targets reforms at stock options and access to visas in a bid to make the country a more attractive place for entrepreneurs and digital talent.

In a press release, Spain’s government said the package of incentives includes what it touted as “the EU’s most beneficial treatment of returns on stock options”.

Ministers have agreed to raise the tax exemption on stock option income from €12,000 to €50,000 per year.

The draft also stipulates that taxation is delayed until the date of settlement — either when the stocks are sold or if the company goes public.

Other notable tax measures include a reduction in Corporate Tax and Non-Resident Income Tax (which drops from 25% to 15%) for four years — which aims to tackle a major barrier, given startups typically aren’t focused on booking revenue in their early years (yet, under the current rules, are expected to pay the same rate of tax as more established businesses).

The maximum deductible amount for investments in new or recently created companies is also raised (from €60,000 to €100,000 per year), while the deduction rate goes from 30% to 50% and the period for considering a company “recently created” is extended, per the draft adopted by ministers.

The reform also looks set to tackle another key complaint of local founders: The cost and bureaucracy of setting up a startup in Spain — which has led some founders to establish their business elsewhere in Europe even if they subsequently build their product out of offices in the country.

Under the draft law, ministers say the procedures for setting up a company will be “streamlined” into a single step and can be completed online without needing to pay a notary or registry expenses.

Startups will also be able to use an online portal to make business declarations and access benefits, per the release.

Olivier Plante, co-founder of a local keyboard startup, ThingThing — which develops Fleksy (a keyboard SDK business) out of offices in Spain — said he felt forced to incorporate his startup in the U.K. back in 2015 — because of relative costs.

“We were like three years not making a dime,” he explains. “First months we needed a lot of money to get started, registry, stocks, banks, notary (they are parasites tbh)…etc. That’s why we founded the company in the U.K. — it costs us 70 GBP instead of ~5K EUR in Spain.”

Plante welcomed the reform package — saying that for him the two most important components are simplifying set-up for startups and the reduction in corporate tax rates in the early years.

The current approach is essentially “killing entrepreneurial spirit from day 1”, per Plante, or else limiting the pool of possible founders to those who are in a position to save enough money to get going. “Often, the real entrepreneurs have less means,” he noted, adding: “And Spain doesn’t enable the poor to become rich at the source.”

A local startup association, startups asociación españa, also welcomed the adoption of the draft text by the Council of Ministers — although it said it’s still waiting to see all the details of the full text once that’s published.

It also said it’s hoping the parliament will go even further in improving the proposal — suggesting it should further increase the number of years for a business to be deemed a startup; and — potentially (assuming the draft has not done so) — make changes to limiting requirements (such as a startup needing to have 60% of staff in Spain to qualify; or revenue of (only) up to €5 million).

The association was most fulsome in its praise of the planned boost to tax deduction for startup investors — dubbing that “excellent news that puts us on an equal footing with others successful ecosystems”.

The reform package contains a number of other measures to incentivize entrepreneurialism — such as entrepreneurs who are simultaneously working as employees at another job no longer being required to contribute twice to the Social Security system (which disincentives bootstrapping); and plans for establishing sandboxes or trial licences in regulated sectors to foster the development of novel services and MVPs.

Although it remains to be seen how the parliament may amend specific details.

In terms of time frame, a government source told TechCrunch it believes the law will be approved in the first half of 2022 — however, they noted that the deadline allows until the end of the year.

On the funding front, Spain’s government has an investment target of up to €4 billion to direct toward fostering startup growth — including drawing on European Union coronavirus recovery funding.

For a deep dive on the country’s ten-year plan for the startup reform, check out TechCrunch’s interview with Francisco Polo, Spain’s high commissioner overseeing delivery of the entrepreneurial strategy from earlier this year.